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How Inventory has Changed due to COVID-19: The case of Airbnb

COVID-19 is one of the significant external pressures that have affected several businesses and sectors in various ways. Airbnb is among the companies which have been affected by the pandemic. One of the fundamental measures set forth by the World Health Organization and government across the globe includes a stay-at-home initiative or work-from-home consideration to maintain social distance in the workplace environment.

According to Lin and Lanng (2020), COVID-19 pandemic has greatly affected global trade and the levels of investment at an increased scale and speed. Different companies such as Airbnb have experienced a strong supply shock, followed by a demand shock as more people were forced to stay at home. Businesses, governments, and individual consumers further struggled to procure basic materials and products, and hence confronting the fragility related to the modern supply chain.

The coronavirus pandemic has affected the rate at which consumers demand or consume Airbnb services. This is associated with the fact that most countries imposed restrictions on travel, as well as on the number of people to be accommodated in a single Airbnb apartment. Lin and Lanng (2020), states that the company’s inventory has suffered because of canceled travels, conferences, and events.  The travel restrictions have directly affected Airbnb’s capacity to generate profits through supply chain disruptions. Notably, the number of people seeking to secure the services of the short-term rental facility has significantly declined. The reduced demand affects the rate of supply to Airbnb’s products in the market as well as a decline in sales. Increased inventory is the primary problem experienced by the company because of the coronavirus pandemic recorded by the number of customers seeking to access the business's short-term rental services.

Over the years, Airbnb has been able to establish a balance between its customer service and inventory investment. However, the firm’s services make it difficult to control its services in the face of pandemics hence critically affecting its capacity to maintain its profitability. It is a fact that lowering inventory has the power to eliminate waste. Despite the experienced challenges, the firm benefits from its ability to reduce its inventory as this makes it easier to establish the wastes that can be reduced. According to Bivens (2019), property owners benefit from the capacity of Airbnb to reduce its transaction costs of operating the short-term rentals. Reducing the sizes of the lots is an effective strategy for lowering inventory. Alternatively, Airbnb can consider changing some of its inventory from the short-term services to the long-term rental services as a way of minimizing the associated costs of inventory for effective management. Evidently, this strategy will ensure a significant reduction in holding costs as well as the experienced total costs. Since the general demand for the firm’s inventory has declined, reducing the number of short-term rental units offered by the company would act as an effective strategy of total cost reduction for every inventory item.

Through the implementation of the guide of the quantity discount model, it is evident that the company can consider offering discounts for its units as a way of inventory management. This will reduce the total annual cost associated with the firm’s inventory even amidst the pandemic. With this strategy, the firm is exposed to an environment where it can choose the quantity and price which provide the lowest total cost for the business and its inventory management.